Indonesia's forex curbs a help or a hindrance?<\/p>\n
SINGAPORE (Reuters): As foreign banks struggle to get to grips
\nwith Indonesia's curbs on offshore rupiah trading it is becoming
\nclear the new rules could well backfire and hinder the currency
\nmore than help it.<\/p>\n
Bankers said the new set of restrictions, aimed at limiting
\noffshore players' ability to get hold of rupiah to sell short in
\nspeculative plays, have effectively sealed it within Indonesia's
\nborders and killed the offshore market.<\/p>\n
On Jan. 15, Bank Indonesia banned rupiah transfers from local
\nbanks to non-residents, and lowered the limit on forward
\ntransactions with no underlying investment purpose between local
\nbanks and non-residents to US$3 million, from $5 million.<\/p>\n
Dominique Dwor-Frecaut, director of research at Barclays
\nCapital, said in implementing the measures Bank Indonesia had
\n\"shot itself in the foot.\"<\/p>\n
\"It's actually negative because the domestic economy in
\nIndonesia is basically dead and the export sector is alive only
\nbecause it's keeping its money offshore,\" she said.<\/p>\n
She said restrictions on offshore trading would further hurt
\nbusiness confidence and slow private inflows, the consequences of
\nwhich could be \"devastating\" for Indonesia's already fragile
\nunderlying balance of payments position.<\/p>\n
The new rules failed to stop the rupiah slipping the wrong
\nside of 9,500 on Thursday as students took to the streets calling
\nfor the resignation of President Abdurrahman Wahid who is facing
\nlikely impeachment proceedings on corruption charges.<\/p>\n
Traders said it was not a case of the rupiah being under
\nattack by offshore players, but Indonesia's violence-prone
\npolitics had dragged it down 25 percent against the dollar last
\nyear as confidence in the country evaporated.<\/p>\n
On top of this, there was genuine onshore demand for dollars
\nprimarily to meet repayments on $140 billion foreign debt, almost
\nhalf of which is owed by local corporates.<\/p>\n
\"With no change in the fundamental political or economic
\nsituation, no curbs or restrictions are likely to work,\" head of
\nresearch at a European bank in Singapore said.<\/p>\n
\"Reducing the complexity and availability of hedging
\ninstruments and the breadth of a market is always bad. It gives
\ninvestors a wrong signal that perhaps they are trying to hide
\nsomething,\" he added.<\/p>\n
Dealers said offshore rupiah holdings have swelled in the past
\nfew years as the political situation deteriorated.<\/p>\n
They said apart from foreign investors most exporters, who are
\nalso importers of raw materials, use the offshore market for
\nfinancing and hedging needs and not all of their activity in the
\noffshore market could be termed investment activity.<\/p>\n
\"It was the lack of confidence in the country's political and
\neconomic environment that drove even resident business to seek
\nthe safety of the offshore market and make some extra money,\" the
\nchief dealer of a U.S. bank in Jakarta said.<\/p>\n
Dealers said most offshore banks and individuals would
\neventually seek to convert part or all of their estimated $600
\nmillion to $1 billion onshore rupiah holdings into dollars. That
\ncould in itself exert a lot of pressure on the rupiah.<\/p>\n
\"This is the reason IBRA (Indonesian Bank Restructuring
\nAgency) has timed its ($500 million) dollar sale at around mid-
\nFebruary to offset that pressure,\" said a senior currency
\nstrategist at a U.S. bank in Singapore.<\/p>\n
Meanwhile, Dow Jones Newswires reported banks in Singapore
\nhave agreed on a benchmark by which they can choose to offset all
\ntheir outstanding rupiah transactions with other counter-parties
\noffshore, following Bank Indonesia's tighter foreign exchange
\nrules.<\/p>\n
The Association of Banks in Singapore have agreed to use the
\nclosing swap rates on Bridge Telerate page 50157, which were
\nquoted as at Jan. 11, dealers said.<\/p>\n
Officials from the Association of Banks in Singapore weren't
\nimmediately available for comment.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/indonesias-forex-curbs-a-help-or-a-hindrance-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}